France's fresh budget battle threatens to topple another government

France is paying an ever-higher risk premium on its debt as investors brace for a third straight year of drama over its annual budget, which threatens to topple yet another leader.

The yield on the country's 10-year government bonds — known as OATs — popped above 4.5% on Friday for the first time since 2008, and has since held above that threshold. It was last seen trading with a yield of 4.6696% on Thursday.

France's 10-year yield is now more than one percentage point higher than the payout on German 10-year bonds for the first time since the height of the euro zone sovereign debt crisis in 2012. The market continues to demand greater compensation for lending to France than it does to Italy or Greece — the problem children of the crisis.

Further across the yield curve, France has some of the highest government borrowing costs in the G7 group of advanced economies.

French Prime Minister Sébastien Lecornu's fragile minority government will submit a draft proposal for the 2027 package to parliament in early October, which will be debated through the month ahead of a Nov. 17 vote.

Lecornu has said he will target 54 billion euros ($61.8 billion) in spending cuts, insisting that greater fiscal discipline is needed to quell France's ballooning debt load and reduce one of the euro area's biggest budget deficits. Some economists say France is on an unsustainable path after Fitch's downgrade of the country's credit rating last year.

On Saturday, the French finance ministry said it expects national debt to reach a ​record high of 119.3% of gross domestic product in 2026, ‌with a projected debt-to-GDP ratio of 121.7% in 2027.

But ever since France's July 2024 snap election failed to deliver an absolute majority in parliament, political division in the National Assembly — which includes the far-right National Rally, the left-wing New Popular Front and Lecornu's center-right grouping — has come to a head over budget disputes.

Administrations were ousted in no-confidence votes in December 2024 and September 2025, while it took Lecornu until February this year to pass the 2026 budget via a constitutional clause allowing him to bypass parliament.

"A tough draft budget for 2027 risks toppling the government despite a widely held desire to avoid a political crisis before the presidential election next spring," Mujtaba Rahman, managing director for Europe at Eurasia Group, said in a note on Monday.

Measures such as a partial freeze on pensions will be opposed by parliamentary factions, Rahman said, but Lecornu is likely determined to end the probable last months of his premiership "by forcing through a budget that will, in theory at least, begin the lengthy task of cleaning up France's state finances."

That could involve compromise on certain issues in talks with rival parties in the coming weeks, or once again resorting to special constitutional powers to pass a budget by the mid-December deadline, Rahman added.